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OECD Reviews of Labour Market and Social Policies: Lithuania

Lithuania has undergone major economic and social change since the early 1990s. Despite an exceptionally deep recession following the global financial crisis, impressive economic growth over the past two decades has narrowed income and productivity gaps relative to comparable countries in the OECD. But Lithuania faces a massive demographic challenge, mostly as a result of large and persistent emigration driven primarily by low wages and poor working conditions. Income inequality is also very high, and households at the bottom of the income distribution have recently benefited very little from the recovery. Major reforms of the labour code, the unemployment insurance system, employment policies and pensions were recently undertaken within the New Social Model to improve labour maket adaptibility and income security. This report provides comprehensive analysis of Lithuania’s policies and practices compared with best practice in the field of labour, social and migration from the OECD countries. It contains several recommendations to tackle key challenges facing Lithuania. This report will be of interest in Lithuania as well as other countries looking to promote a more inclusive economy.

Non-inclusive growth increases the emigration challenge in Lithuania

Remarkable economic growth over the past two decades has permitted Lithuania to narrow the national-income gap relative to comparable OECD countries, but the country faces substantical challenges. The demographic situation is very difficult, with Lithuania’s population having declined by more than 1% annually since the early 2000s – mostly a result of large and persistent emigration, driven primarily by low wages and poor working conditions. Income inequality and poverty are very high, as households at the bottom of the distribution have benefited very little from the recent recovery. This highlights the importance of well-functioning labour market institutions that support the continuing economic transformation while providing employment opportunities to all groups and raising job quality. It also creates a pressing need for stronger social policies that effectively reduce high inequalities and boost the living standards of vulnerable groups.